Is ELK-Desa Resources Bhd Worth Investing In?

ELK-Desa Resources Bhd (ELK-Desa) has its roots traceable back to 1971. In that year, Teoh Hock Chai had founded Eng Lee Kredit, a firm that involved in Hire Purchase (HP) financing for used motor vehicles. Teoh believed that his business would grow faster if it is operated by a public listed entity.

Thus, Teoh proposed to Unico-Desa, an oil palm plantation company, to get into HP financing business. The board of Unico-Desa agreed and had started their HP financing business in 2004 via ELK-Desa Capital, which carries the abbreviation of Eng Lee Kredit in its corporate name. Eng Lee Kredit ceased its operations to avoid any possibility of a conflict of interest with Unico-Desa.

In 2005, ELK-Desa was set up under an internal restructuring exercise as an investment holding entity. ELK-Desa had acquired ELK-Desa Capital. Later, on 18 December 2012, ELK-Desa was listed on Bursa Malaysia. Today, it has a market capitalization of RM 350.3 million.

In this article, I’ll list down 8 key things that you need to know about ELK- Desa before you invest.

#1: Stock Symbol

Ticker Symbol: KLSE: ELKDESA / KLSE: 5228
Market Capitalization: RM 350.3 Million (25 May 2018)

Share Price: RM 1.17 (22 May 2018)

Industry: Finance

Syariah Compliant: Nope

#2: The Business

Presently, ELK-Desa is involved in two main business segments:

1. HP Financing
   ELK-Desa operates from two branches located in Kuala Lumpur and Klang. It conducts its businesses through used motor vehicle dealers. Currently, it has established an extensive dealer network of in excess of 1,000, a multiple of 10 times from 100 dealers in 2004. It has issued HP financing to a pool of 25,000 borrowers where the disbursements are capped to a maximum of RM 20,000 per disbursement to reduce its credit risk. In 2018, this segment has generated RM 73.1 million in revenues and RM 34.9 million in profits before tax (PBT) and hence, remains as the main income contributor to ELK-Desa.

2. Furniture
   ELK-Desa operates this division under ELK-Desa Furniture Sdn Bhd, which was incorporated in 2015. It operates four retail showrooms in Aeon Mall Shah Alam, Klang Parade, Bandar Ambang Botanic Klang, and Off Jalan Goh Huat Hock in Klang. It has started to manufacture its own furniture under the ELK-Desa brand and distributes them to over 400 furniture retail dealers across Malaysia. In 2018, the division has made RM 31.1 million in revenues and RM 0.4 million in PBT, as such, remains an insignificant contributor of profits to ELK-Desa.

#3: Profitability

ELK-Desa has achieved consistent growth in both revenues and profits in the last 6 years. Revenue had increased from RM 41.0 million in 2013 to RM 104.1 million in 2018. The growth in revenue was more evident in 2017 and 2018 as ELK-Desa’s furniture division had contributed its first full financial results in the year 2017. Shareholders’ earnings had grown from RM 13.9 million in 2013 to RM 25.9 million in 2018. This is due to higher earnings achieved from its HP financing business during the 6-year period.

Source: Annual Reports of ELK-Desa Resources Bhd

#4: Balance Sheet Strength

As at 31 March 2018, ELK-Desa has reported having RM 31.7 million in long-term borrowings. Hence, its debt-to-equity ratio works out to be 8.0%, which is a relatively low and manageable figure. Also, it was reported to have a cash reserve of RM 50.3 million. Out of which, RM 34.7 million were placed in a portfolio of short-term funds.

#5: Future Prospects

On 8 September 2017, ELK-Desa has completed the issuance of 46.9 million Right Shares where it had successfully raised RM 53.9 million. It has spent a total of RM 1.2 million in expenses related to the Rights Issue. As I write, the company has fully utilized the proceeds of RM 52.7 million on HP Financing disbursements. As at 31 March 2018, ELK-Desa has expanded its portfolio of HP Receivables to RM 387.3 million.

Source: Annual Reports of ELK-Desa Resources Bhd

#6: Valuation

As I write, ELK-Desa is trading at RM 1.17 a share.

In 2018, ELK-Desa has reported generating RM 0.099 in earnings per share (EPS). Thus, its current P/E Ratio works out to be 11.81. As at 31 March 2018, ELK-Desa has reported having RM 1.39 in net assets a share. As such, its P/B Ratio works out to be 0.84.

In 2018, ELK-Desa had declared RM 0.0675 in dividends per share (DPS), as such, successfully maintained its DPS in 2017. If ELK-Desa continues its DPS payment at RM 0.0675 in 2019, then, its expected gross dividend yields works out to be 5.77%.

Note:

ELK-Desa has declared its final DPS of RM 0.035 in respect to the financial year 2018 on 24 May 2018. The entitlement date and the payment date have yet to be determined as it would only be recommended at its 29th AGM for approval by its shareholders.

The first DPS of RM 0.0325 in respect to the financial year 2018 was paid out to shareholders on 8 February 2018.

#7: Investors Relation

For further enquiries or to request for additional investment information on ELK-Desa Resources Bhd’s Investors Relation matters, you may contact:
Email: enquiry@elk-desa.com.my

Phone: +03 2145 7000

Website: http://www.elk-desa.com.my/investor_relation.html

#8: Major Shareholders

As at 21 May 2018, Teoh Hock Chai is the largest shareholder of ELK-Desa Resources Bhd with 36.61% shareholdings, both direct & indirect. Presently, Teoh is appointed as the Chairman of ELK-Desa Resources Bhd.

His sons, Teoh Seng Hui, Teoh Seng Hee, and Teoh Seng Kar are appointed as Group Executive Director, Chief Financial Officer and Non-Executive & Non-Independent Director of ELK-Desa Resources Bhd.

His brother, Teoh Hock Su is employed as the Senior Manager – Business & Operations for the HP Financing Business.

His nephew, Teo Chong Guan is a director and a major shareholder of ELK- Desa Furniture Sdn Bhd.

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